The budget proposal published by the Biden administration last week proposes that, over the next decade, almost five trillion dollars be dedicated to new expenses, that is, disbursements above the “baseline” calculation of the expenses that they would occur if the new policies were not put in place. Some of the additional money would come from borrowing, but the bulk – $ 3.6 trillion – is supposed to come from new tax revenue. However, President Biden has promised not to raise taxes on households with incomes below $ 400,000 a year. And your budget actually proposes to get all the extra money by raising the bill to large companies and high-income individuals.
By the way, it’s worth noting that the two proposals that have attracted the most attention – raising corporate income tax to 28%, which Donald Trump cut from 35% to 21%, and raising the top bracket of income tax again individuals at 39.6% – they only account for a fraction of the proposed increase in income (just over a quarter). Most of the money is supposed to come from closing loopholes and eliminating what are perceived as injustices, with measures like giving the Internal Revenue Service (IRS) the necessary resources to detect fraud from the wealthy. , eliminating regulations that allow many business profits to go untaxed and closing some of the main avenues of tax evasion for companies.
Still, is it feasible to “rebuild better” by taxing only the very rich? Is it sensible? Could it be done more effectively? My answer to the first two questions is yes, assuming that, given the political realities, Biden needs to keep his ambitions quite modest. The answer to the third is that it is complicated.
There are, in my opinion, three main criticisms of Biden’s tax strategy, two of which deserve to be taken seriously. The unserious criticism is the claim that raising taxes on large companies and high incomes would hurt the economy. Experience has time and again refuted claims that prosperity depends on keeping taxes on those at the top low, most recently with the failure of Trump’s tax cuts, which did not bring the promised investment explosion. The only reason the obsession with lowering taxes on the rich continues to hold sway is that letting this zombie drag its feet is helpful to big business and the rich. So let’s not waste time with him.
A much more serious criticism of Biden’s approach comes from the left. There are good reasons to think that the kind of society progressives want us to become, with a very strong social security cushion, cannot be paid for just by making the rich pay tax. A country like Denmark, for example, has a high maximum tax rate (although it is not much higher than the effective tax rate that applies to high-income New Yorkers, who in addition to federal taxes pay state and municipal taxes). But Denmark also has very high taxes for the middle class, specifically a 25% value added tax, which is actually a national sales tax.
And the fact that even the Nordic countries feel obliged to raise a lot of money from the middle class suggests that what can be obtained by taxing only the rich has a limit; much higher than conservatives claim, but a limit nonetheless.
If we want health care for everyone, Nordic levels of childcare, general family support and the like, it will not be enough to raise taxes solely on the elite who earn more than $ 400,000. And many progressives, myself included, would like to have these things. However, it would be incredibly risky from a political point of view to try to sell members of the middle class the idea that higher taxes would be worth paying in exchange for all the benefits they would receive.
Would you advise Biden to take that risk, especially at a time when democracy itself is under attack? It certainly makes sense to apply a more modest program, which, while making great changes to American lives, can be financed by collecting taxes only from big business and the rich.
But what form should such taxes take? Many interesting and clever ideas have been left out of Biden’s plan. There has also been technical criticism of the details of the president’s proposals, and tax policy is an area where the details really matter. Oh, and it is likely that, in one way or another, revenues will be lower than the government projected, and that, consequently, the deficit will increase. However, given that the Administration can borrow at negative real interest rates, this is not a cause for great concern.
So what is the government doing wrong? Sincerely I dont know. I like to think that I know quite a bit about economics and that I see the difference between true experts and amateurs. But tax policy is really complicated, and there are seriously credible experts on both sides of the detailed tax debates. Some of the tax experts I trust the most are now in government.
What this means is that while some of the criticisms may be spot on, Biden’s proposals are generally adequate, and they probably don’t miss too much on the details. My biggest concern is not that he messes up on big issues, but that the Democratic congressmen – some still too deferential to the interests of money – will goof off what he’s trying to do right.
Paul Krugman He is a Nobel Prize in Economics. © The New York Times, 2021. Translation News Clips
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.